Bootstrapping

I have lots of friends who are entrepreneurs and one day I noticed something. Most of my friends who had used bootstrapping to start their businesses and owned them all on their own were doing very well financially.

On the other hand, most of my friends who had obtained venture capital funding were not doing as well financially.

Bootstrapping usually means starting a business without external capital. No dilutive capital or issuing common or preferred shares, or convertible debt. It’s also for growing companies as a good way of thinking out how they can launch a new product.

Here are a few keys to successfully bootstrapping a startup along with a slide deck and a video.

Find a budget

People will tell you that to start a business you must find a problem that you can solve but that isn’t really enough.

You must be solving a recognized problem

Someone must own the problem

The problem owner must wake up every day trying to solve the problem

And the most important part of bootstrapping is finding people with a budget.

And it helps if you do something that is radically different. Sure you can start a company where everyone is doing the same thing. To be competitive then you’ll need to be better at execution or better at selling. Those types of businesses though don’t have the same potential as ones that are doing something radically different.

And why do you need to do something radically different? Well it’s because switching costs are high, people don’t like to change and they will only change how they are doing something if the alternative is really outstanding.

Sell before you Build

The next key to bootstrapping is is to sell before you build. I see many entrepreneurs who spend all sorts of time at the beginning of an enterprise writing a business plan, getting their website ready, creating a product but that’s the wrong way around.

Research shows that successful software companies spend as much on sales and marketing from day one as they do on research and development. That’s not the Canadian way but it works. You need to start selling or engaging customers on day one.

In fact if you read the Four Hour Work Week, you’ll see that he tests the market with fake ads well before getting down to building a product.

Get Ahold of Their Money

And if you’re bootstrapping, you better get their money early if you want to survive.

Do some consulting

Sell services

Develop customized software

Get prepayments

Use Kickstarter

And once all that’s working you can go out and raise money from venture capitalists, confident in the knowledge that you have found a budget to build a company around.